Choosing A Structure For Your Business - Exceptional Tax Services (2024)

FAQs

Which business structure is best for tax purposes? ›

S corp. An S corporation, sometimes called an S corp, is a special type of corporation that's designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates.

The most tax-efficient structure for foreign investors is often Limited Liability Companies (LLCs) and partnerships, as they allow for pass-through taxation, limited personal liability, and eligibility for certain deductions.

The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A limited liability company (LLC) is a business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.

Disregarded entities are the simplest tax classification with straightforward tax reporting. Your LLC is not taxed or required to file a tax return. Instead, the business profits and losses pass to you as the sole owner to be reported on your personal income tax return.

progressive tax—A tax that takes a larger percentage of income from high-income groups than from low-income groups. proportional tax—A tax that takes the same percentage of income from all income groups. regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.

Progressive taxes take more from those able to pay more. Because this method is based on the ability to pay, it is considered the fairest means of taxation.

Single layer of taxation: The main advantage of the S corp over the C corp is that an S corp does not pay a corporate-level income tax. So any distribution of income to the shareholders is only taxed at the individual level.

A functional organizational structure is the easiest and the most natural solution for your small business. Although there are other structures like divisional structure or matrix structure, a functional structure is the easiest and the most natural organizational structure to start with for your small business.

Sole Proprietorship

Easy to Form – Sole Proprietorships are the easiest, most common, and least expensive business structure. A person is essentially a walking, talking sole proprietorship in waiting. All you need to do is sell something—a product, a service, anything—and boom … suddenly you're a sole proprietor.

Among one of the biggest disadvantages of a sole proprietorship is unlimited liability. This liability not only spans the business but the business owner's personal assets. Debt collectors can access your savings, property, cars, and more to see a debt repaid.

Is an LLC taxed as a C Corp? ›

If the LLC is a corporation, normal corporate tax rules will apply to the LLC and it should file a Form 1120, U.S. Corporation Income Tax Return. The 1120 is the C corporation income tax return, and there are no flow-through items to a 1040 or 1040-SR from a C corporation return.

The sole proprietorship is the most common form of business organization.

An LLC has distinct advantages in the areas of legal protection and liability. While there are filing fees for setting up an LLC, that cost can be well worth it when compared to the thousands of dollars you could be liable for as a sole proprietor. On the other hand, it costs no money to start a sole proprietorship.

Among one of the biggest disadvantages of a sole proprietorship is unlimited liability. This liability not only spans the business but the business owner's personal assets. Debt collectors can access your savings, property, cars, and more to see a debt repaid.

You might choose an LLC if you want to avoid corporate taxation, don't plan to fundraise with investors and prefer minimal formal regulations. You might choose a corporation, on the other hand, if you're looking to sell ownership, attract investors or go public in the future.